The West, or China? Serbia is courting all sides with its lithium business

The United States and China are in an escalating trade war over supplies of lithium, which is critical to the booming global electric vehicle business. Serbia is playing one team against the other and trying to benefit from both.

Serbia has Europe’s largest lithium deposits, with the potential to become a $6.5 billion annual industry. Tesla, Google, and Apple are lined up. The US-China trade war has geopolitical implications, affecting US-China relations and European industry.

During a recent visit to Belgrade, Chinese leader Xi Jinping lobbied Serbian President Aleksandar Vucic for access to Serbia’s lithium supplies. Vučić is an active suitor, benefiting from Chinese investments while accommodating institutions in the United States and Euro-Atlantic countries. He pits the US and China against each other, tempting both and playing one against the other. While this approach may serve Serbia’s interests for now, Serbia will soon have to decide whether its long-term interests lie in the West or in Eurasia.

According to the U.S. Geological Service, Serbia has 118 million tons of lithium oxide, an essential raw material coveted by Tesla and other batteries. Vučić calls lithium “one of the greatest hopes for Serbia.” Europe’s largest source of lithium is in the Makuba region of western Serbia, where lithium deposits account for up to 2% of Europe’s deposits. Australian mining giant Rio Tinto has a controlling stake in Makuba.

The South China Morning Post reported that Vucic and Xi met in Belgrade on May 8 and discussed a wide range of industry cooperation. The two sides discussed China’s investments in space science and technology, as well as China’s arms sales to Serbia. Their discussions on economic cooperation centered on lithium.

The Biden administration also took note. This week, the United States announced new tariffs on electric vehicles, solar panels, steel and other products made in China, citing China’s unfair trade policies. The tariffs are aimed at protecting American jobs in an election year and include a 100% border tax on electric vehicles from China.

The first part of the additional tariffs proposed by the US would affect $18 billion of Chinese goods. The trade restrictions are also aimed at limiting the backdoor trade of Chinese-made EVs through Mexico, which drives up prices and impacts U.S. consumers. U.S. officials say China’s dominance of the EV market is a risk to U.S. national security.

The Department of Commerce reports that BYD, China’s largest automaker, is rapidly expanding its market share. BYD makes a low-cost electric car called his Seagull, which sells for about $12,000 and has mass market appeal. Comparable U.S. vehicles cost three times as much. BYD uses state-of-the-art batteries made from lithium iron phosphate. It currently produces 3 million cars a year, but that volume will skyrocket if China acquires additional lithium supplies.

In addition to the economy, policy goals are also top priorities for Mr. Xi. Vučić bows to China’s demands that Serbia reject Taiwan’s independence and oppose US arms sales to the island nation. In return, Xi stressed Serbia’s national sovereignty and rejected Kosovo’s 2008 declaration of independence from Serbia, which was recognized by about 100 countries, including all G7 members.

China’s position here is further colored by NATO’s mistaken bombing of its embassy in Belgrade in 1999, killing three Chinese nationals. President Xi’s recent visit to Belgrade was filled with symbolism, coinciding with the 25th anniversary of the Chinese embassy bombing, but many in China and Serbia wonder if the event was a coincidence. I doubt it.

China’s national politics always includes economic factors. Vučić signed 18 agreements with Xi in Beijing last year, including a free trade agreement that will come into force on July 1. Other agreements promote legal, regulatory and economic cooperation. China owns mines and factories across Serbia and has financed billions of dollars for roads, bridges and new facilities through its Belt and Road initiative, which finances infrastructure development.

During his visit, President Xi chimed in on relations with Serbia, saying, “China and Serbia are true friends and good partners. The political mutual trust between the two countries is solid.” Pragmatic cooperation, institutional improvement, Multilateral coordination will be close and smooth, and our strong friendship will last forever.”

Anti-American sentiment is on the rise in China, and China and Russia are getting closer. Similarly, Serbia has refused to join Western sanctions against Russia for its invasion of Ukraine.

Mr. Xi sees support for Russia as a geostrategic counterweight to U.S. influence. Both countries have been implicated in large-scale disinformation campaigns aimed at influencing public opinion in the United States. Mr. Vučić has strengthened Serbia’s ties with authoritarian states such as China and Russia, while manipulating alliances to balance U.S. influence. As the protagonist of the NATO intervention, Washington is a central supporter of Kosovo’s independence and state-building.

Controlling access to lithium is already benefiting Serbia. The United States has shown increased respect for Serbia in the EU-sponsored dialogue on normalization and diplomatic relations between Kosovo and Serbia. Vučić is reaping political benefits from the Biden administration’s more equitable approach.

There is a Chinese proverb that says, “It takes a long fishing line to catch a big fish.” China is investing in Serbia through the Belt and Road Initiative, playing a long-term game to exert economic influence.

Russia is bracing for a long war in Ukraine and is waiting for a moment to benefit from a shift in alliances. In this way, Serbia will entertain all suitors until its lithium mines become productive. Lithium is at the heart of the changing electricity landscape in south-eastern Europe.

David L. Phillips is an adjunct professor in the Security Studies Program at Georgetown University and a visiting scholar at the University of Oxford.